Thursday, May 31, 2012

I was having a conversation with a good friend yesterday about how John McCain impaled his election chances in 2008 when he selected the brain-dead, illiterate Sara Palin as his running mate. Even following Bush's disasterous last term for Republicans, it would have been hard to lose to an African-American community organizer with almost no DC experience and a name that sounded Islamic. I really think Palin was McCain's achille's heel.

Now Bill Maher has come up with a reasonable theory that Jersey Shore's "Snooki" may actually be an offspring of Sara Palin's:

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It surely makes sense to me: Inbred idiocy begets mongolism begets MTV's "Jersey Shore." I tried watching it once and you truly have to be a caveman to understand the grunting that passes for dialogue...

Wednesday, May 30, 2012

I don't think China really cares about the Comex other than the fact that the Comex operators do a great job keeping the price of gold and silver artificially low for China as the world's largest buyer of gold and silver. - Dave in Denver

Anyone who buys into the "gold is in a bubble/bear market" proclamations being tossed out on CNBC, Bloomberg and other mainstream disinformation sources needs to examine the real evidence. The real evidence does not come from some asswipe working for a big bank brokerage firm who examines pretty lines drawn on a chart or has spent the last 10 years conning the public into buying stocks like Facebook.

The real evidence comes from looking at what the big buyers of gold are doing. I think many of you have already seen the recent articles which report the latest Central Bank gold accumulation in primarily eastern and southern hemisphere countries. As I mentioned yesterday, China imported the equivalent of about 10% of the world gold production in 2011. In Q1 2012, China imported 50% of the amount it imported for all of 2011.

Venezuela has repatriated most of its gold (200 tonnes) that was being held outside of the country by western country Central Banks (England, U.S., Switzerland). Mexico has been recently accumulating physical gold. And Viet Nam is now known in global gold circles as "little Switzerland." In other words, it seems that every country other than the U.S., Japan and EU countries are actually aggressively accumulating physical gold (and silver).

One reason is that the B.I.S. - Bank for International Settlements, the Central Bank for all global Central Banks - is looking into reclassifying gold as a Tier 1 asset: LINK What this means in short is that it would elevate gold held by banks to the same asset class status as paper currency. In other words, "gold is cash." Currently gold is classified as Tier 3 asset, which means that any gold held by a bank gets a 50% haircut to market value in accounting for a bank's required capital reserves held against liabilities. Tier 1 status would elevate gold to 100%, same as cash. Hmmm...

What this means is that banks/Central Banks which own and hold physical gold (not GLD, mind you) would be incentivized to see the price of gold go a lot higher. This would put the big accumulators (China, Russia, India, Gulf States, South America/Mexico) in direct conflict with the big manipulators (Fed, Bank of England, ECB). This could get interesting.

Another point of note is Germany is now proposing that, in return for bailout support from Deutscheland for the ailing southern EU countries, EU members would be required to use their gold as collateral in order to participate in a fund that would be established to bail out troubled Governments:

Germany would have a lockhold over the fund, able to enforce discipline. Each state would have to pledge 20pc of their debt as collateral. "The assets could be taken from the country’s currency and gold reserves. The collateral nominated would only be used in the event that a country does not meet its payment obligations," said the proposal.

What the above developments signal to me is that - contrary to the bubble/bear market idiocy spewing from the paper pushers in this country - gold is actually getting ready to move much higher in price against the dollar/euro/yen/yuan. In fact, the incentives are being implemented to make sure that happens. Think about that for a bit.

The next time your trusty financial advisor calls up to tell you to sell your GLD and buy some muni bonds or a stock market ETF, ask him how come the B.I.S. is looking into making gold a Tier 1 asset and Germany wants to require gold to be used as lending collateral? You may hear a dial tone after that inquiry...

Tuesday, May 29, 2012

How did the dollar die? First it died slowly — then all at once...No asset is safe now. The only choice to hedge risks is to hold hard currency — gold (Zhang Jianhua from China's Central Bank) - source of quotes LINK

The economic numbers reported this morning showed continued deterioration in housing and the overall economy. In addition, consumer and investor confidence is starting to plunge again.

The Case-Shiller 20 city index of housing showed that the small bounce in housing prices that was expected in March from February was actually a lot smaller than expected. Year over year for March, prices declined 2.6%. The year over year number is likely more statistically relevant that month to month, because it doesn't reflect seasonal "noise" the way a month to month measure will. Also, the Case-Shiller index de-emphasizes distressed/foreclosure sales, so the pricing is skewed to the high side. In other words, despite the Fed/Govt's attempt to reinflate housing with artificially low interest rates and new programs which enable buyers with decent credit to make no-down-payment purchases, housing is still in serious decline. It is unlikely that most media outlets will delve into details or report the year over year number, so please do not fall into the trap of buying into the widely pimped idea that housing has bottomed and is bouncing.

In addition to housing, the widely followed Conference Board's measurement of consumer confidence plunged in May. The prior reading was 68.7, consensus expectation was 69.7 and the actual reading was 64.9. That's ugly. Also, the State Street institutional investor confidence index was lower than expected and the Dallas Federal Reserve manufacturing index absolutely plunged from the consensus expectation. You can review this data here: LINK

The quote above about the death of the dollar is a play on a famous Ernest Hemingway quote from "The Sun Also Rises:" "'How did you go bankrupt?' 'Two ways, gradually then suddenly.'" I wanted to include this because I had a conversation with a friend and investor in my fund this past weekend about the timing of the eventual collapse of the dollar. My view is that the dollar will be held up, while the elitists rape and pillage every last crumb of wealth, for longer than most believe is possible but the collapse of the dollar will be sudden and unexpected by most.

The relevant analogy of what to look for as indications of an impending collapse is one of my favorite analogies of all time from one of my finance professors at the University of Chicago, Richard Leftwich, who likened investors looking for answers to a drunk in who had been sleeping on a bench but was looking for his lost wallet under the street light: "'Why are you looking over there for it?' - 'Because that's where the light is shining.'" It's the same thing with the dollar. The dollar is slowly eroding in value everyday and the signs are all around us to be seen if you know where to look. But by the time the obvious signal of its demise hits - an outright collapse - it will be too late. It's the same situation as in Weimar Germany. On November 13, 1923, many wealthy people had most of their wealth in the bank when they went to bed but woke up the next day as paupers because the German mark collapsed and was devalued away over night, as the rest of the world would no longer accept it as payment.

I bring this up because a news item was announced late Friday evening, after most people has shut their business eyes and ears for the long holiday weekend, that will have significant consequences for the U.S. dollar's reserve currency status. China and Japan announced that they are going to start directly trading in their respective currencies - the yuan and the yen - and completely bypass using the U.S. dollar as the currency for exchange. This news report is dated from Sunday, but the first reports hit the newswires on Friday evening: LINK. It blows my mind that more is not being commented on or reported about this. China is methodically and slowly withdrawing from its use of the U.S. dollar. This is a significant step to that end, as China is now the world's largest importer/exporter and Japan is a major trading partner for them.

Most people in this country are completely clueless about what China is doing with regard to the dollar, instead preferring to look under the light that CNBC or their trusty financial adviser shines for them for knowledge on the markets. Remember, the collapse of the dollar will happen gradually, then suddenly.

For the relevance of the quote above from the PBOC official, see this article: LINK China's demand for gold surged 51% in 2011. What the article doesn't contain is that in Q1 2012, China imported 138 tonnes of gold - more than half of the total amount hoovered up by China in all of 2011. I would like to point out that China's gold consumption in 2011 represents about 10% of the total global gold production...Don't let the sudden collapse of the dollar leave you holding worthless paper and no gold/silver...

Thursday, May 24, 2012

When any Governmental system rests on a monetary system which uses a paper derivative of the wealth created by that system - also known as a "fiat" monetary system - that paper derivative is only as valuable as the promise that stands behind the paper which is used to represent systemic wealth creation. At the end of the day, a fiat monetary system depends on the degree to which you trust the person or entity making the promise.- Dave in Denver

Most people have no clue what the word "fiat" means in reference to the U.S. dollar or any other paper currency. The word "fiat" is a Latin word which meant "let it be done." For the purposes of Modern English, the word "fiat" means "a command or act of will that creates something without or as if without further effort; an authoritative determination or 'dicatate;' or an authoritative or arbitrary order, a 'decree.' Thus, as it is used in reference to a currency system, "fiat" means a command or decree that creates something without further effort and is an authoritative mandate.

In other words, the U.S. dollar (euro, British pound, yuan, etc) is nothing more than a piece of paper that must be used by all citizens as currency by order and dictate of the U.S. Government (supra). This currency is thereby mandated for all economic transactions. Because the value of the currency is based on the decree of its value by the Government, everyone who accepts its use is exposed to the risk that some day the Government will not be able to uphold its decreed value.

I hope that helps explain why it is said that the U.S. dollar exposes the user to counterparty risk. There is counterparty risk embedded in the U.S. dollar because to the extent the U.S. Government allows the value of the U.S. dollar to erode, there is an event of default. The value of the U.S. dollar as measured against gold has eroded over 95% since the creation of the Federal Reserve in 1913. Why? Because the amount of dollars printed and outstanding has increased since then by a like amount in excess of the net wealth created by the U.S. system.

How is this possible? Because the net wealth of the U.S. system is the economic value of the entire system LESS the amount of debt and other outstanding liabilities racked up over the years. In fact, since Obama assumed the White House, the amount of Treasury debt issued is almost as much as the total amount of Treasury debt issued by all previous Presidents before Obama. And with each additional Treasury auction, which occurs now every two weeks in three maturity tranches, not including the weekly T-Bill "rollover" auctions, the risk increases that the U.S. Government will never be able to uphold the value of the U.S. dollar as a fiat currency. Is that a risk you are willing to bear?

Facebook is the classic example of the "derivative" risk embedded in a fiat system. The value of Facebook stock is supposed to represent the inherent economic wealth of Facebook as a business. But what happens when the "counterparty" making representations of the amount of this wealth makes differing representations of the amount of Facebook's value to different segments of investors participating in the Facebook IPO? What happens when promises from management get conveyed on different levels to different investors?

This is exactly what happened in the Facebook IPO. And what was supposed to be the crown jewel embodiment of the U.S. system of "capitalism" turned out to be a complete cesspool of fraud and corruption. Let's cut to the tape:

Capital Research & Management wanted to buy into the Facebook Inc. FB +0.38% initial public offering. But days before the IPO, an underwriting bank on the deal warned the big investment firm about Facebook's dimming revenue prospects...The Los Angeles firm, armed with information from a May 11 "roadshow" meeting with underwriters and Facebook, along with similar estimates of its own, slashed the number of shares it intended to buy. The night before trading began, a Capital Research manager told a banker at Morgan Stanley, MS +0.37% the lead underwriter, that the deal's pricing was "ridiculous," according to a person familiar with the situation. Some Capital Research fund managers didn't buy into the IPO at all...

Jennifer Kohne received no such warning. The 52-year-old retired medical-device salesperson in St. Louis bought 3,000 Facebook shares Friday at $42 through an online brokerage and now sits on losses of $30,000 based on Wednesday's closing price of $32

You can read the play-by-play in this reprint of the Wall Street Journal article: LINK

I had suggested the other day that Morgan Stanley had seriously violated SEC and FINRA regulations in their underwriting of the Facebook IPO. The above article confirms it. And based on my extensive involvement during the 1990's on Wall Street in underwriting, selling and trading new issue securities, I could probably write a detailed article on what happened behind the scenes in the last few weeks leading up to the Facebook IPO.

For instance, I suggested the other day that not only did Morgan Stanley warn its best institutional investors that the numbers being used represent Facebook's wealth (revenue and income projections) were too high, but that the retail brokers and investment advisers failed to make the same representations to their retail investors when they phoned them up to tell them the "good" news that they could buy a lot more than 500 shares. I know this happened because I participated in this charade on bad deals from the institutional side and I know what we told our retail outlets in order to move paper that we couldn't move to the big boys. This is all fact.

To tie this in to my diatribe on "fiat" currency, stocks and bonds are risky because they are "derivatives" of currency. Not only are stocks and bonds "promises" based on a represented underlying representation of wealth, but their promise is "derived" from the promised value of the currency used to satisfy the claim represented by stocks and bonds. And that currency is in turn based on the promise of the Governmental body to uphold its value. So when you buy a stock or a bond, you are relying on the promise of the issuer to pay back the value of that stock or bond (obviously there are differences between an "equity promise" and "debt promise," but that is beyond the scope of this blog post). In turn, you are ALSO relying on the promise by the Government that the currency you are getting also has its representational value intact.

Thus, when you buy a stock or bond, there are two counterparty promises standing between you and the value of your investment. And it all boils down to this: to what degree do you trust Morgan Stanley - or any Wall Street firm - and to what degree do you trust the U.S. Government?

Re-read my blog post from the other day explaining why Facebook is a bigger Ponzi than Madoff. Then read that Wall Street Journal article and tell me if you trust Morgan Stanley or any other Wall Street firm? If you do you are an idiot. If you don't, it means our system of trust - of currency and investment by "fiat" - is collapsing.

Based on some recent Rasmussen polls released, I would say that trust in our Government is also in serious decline. We know less than 10% of the public trusts Congress. You can google it, but it looks like based on the latest Rasmussen polls, less than 40% of the public trusts Obama. If this is the case, it also means that trust in the ability of the Government to uphold the value of the U.S. dollar should also be in serious decline.

If you don't trust Congress and you don't trust the current Presidential administration, or the one before it and likely the next one, then why in the hell would you trust the U.S. dollar? Or any fiat currency for that matter? From Zerohedge.com:

Tuesday, May 22, 2012

Facebook is turning out to be the poster child for everything that is corrupt on Wall Street. From fraudulent representation of financials to the fleecing of widows and orphans.

The Facebook stock offering was priced at $38 per share, giving it a $104 billion market cap. Before the stock freed up to trade, Bloomberg News' Trish Regan tweeted that the opening indication was in the $53-$55 range. No doubt she was just regurgitating the fraudulent representation of the demand for the stock from her "sources" at Morgan Stanley, the book-runner for the deal. The opening trade was $42.05 - a market cap of $113.5 billion and the high-tick trade was $43, a market cap of $116 billion. Currently the stock is trading at $31.32, down another 7.8% on the day and a market cap of $84.5 billion. Facebook stock has lost almost $32 billion in market cap since its opening day peak.

While someone at Morgan Stanley was texting Trish Regan about how strong the demand was and that the stock would open up about 40% above the IPO price, Morgan Stanley was busy raising the retail broker limit on stock allocation from 500 shares to 5,000 share. Let's examine this for a second. One thing I would like to know is how much stock was directed into Morgan Stanley's retail brokerage stock distribution network AFTER the allocation limit was raised to 5,000 shares. Trish Regan should learn to do some intelligent due diligence before she allows Wall Street to use her as a spunk receptacle again. I've always thought she was an idiot and a Wall Street harlot, but now a lot more people will realize the truth about her and about financial media in general.

Not only did Morgan Stanley enable its retail broker network to stuff retail investor accounts with this crappy deal, but Morgan Stanley's Facebook stock analyst, Scott Devitt significantly cut his revenue forecast while the stock was being marketed to investors, LINK. Did Morgan Stanley's brokerage force tell retail stock investors about this BEFORE stuffing them with more of this overvalued piece of garbage?

As to whether or not Morgan Stanley and its brokers violated SEC and FINRA laws would be very easy to investigate. All sales and trading phone lines are taped and it would be simple to subpoena all retail brokerage statements for investors who were sold Facebook stock. The question is, will Barack Obama order SEC Chaircrook Mary Shapiro and Attorney General Eric Holder to investigate this financial rape and pillage of the public? Please note that is merely a rhetorical question, as we all know the answer, based on Obama's dismal record of investigating a prosecuting financial fraud.

What does this have to with Madoff? It looks like the actual amount of losses from the Madoff Ponzi Scheme was somewhere around $15 billion. We'll probably never know the truth, but I bet the Wall Street firms who were custodians and fund conduits for Madoff's operation know. So far, Facebook has raped investors for about $18 billion based on a $38 issue price, and about $32 billion based on the high tick after trading commenced. This is a direct transfer of $18 billion from the pockets of investors to the pockets of Mark Zuckerberg, Facebook employees and Morgan Stanley (and the other underwriters). This is a de facto Ponzi scheme.

What do my insights on the Facebook Ponzi scheme have to do with gold? I'll let Ayn Rand explain, through the voice of Francisco D'Anconia in "Atlas Shrugged:"

Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims.

Monday, May 21, 2012

JP Morgan will ultimately hit the wall on its enormous derivatives book and become technically insolvent. But because JPM is the primary bank doing the Fed's manipulative bidding, the Fed will monetize it behind the scenes because otherwise JPM's catastrophic, fraudulent predicament will bring down the entire system.

That is pretty much a verbatim accounting of a discussion regarding JPM's off-balance-sheet, hidden-from-sight-debt and derivatives exposure between myself and a long-time colleague back in 2002, before 99% of those who now understand what is going on had any clue. Gold was bouncing around the mid $300's at the time and I had just purchased my first 10-pack roll of 1 oz. Austrian Philharmonics. Friends to whom I showed my gold bounty looked at me as if I had descended from Mars.

Quick note on Facebook: the stock traded down over 13.5% from Friday's close at one point today. It's currently down almost 11%. This is the biggest follow-up trading failure for an IPO that I can ever recall seeing. I've seen junk bonds go into default within a year of issuance, but even those never traded down like this on the 2nd day of public trading. The people most hurt by this are the moronic retail daytraders and unsuspecting casual "investor" who chased this bubble. As we learned ex post facto, Morgan Stanley created a lot of "spin" on this by limiting IPO orders in retail brokerage accounts to 500 shares, but right before issue they raised the limit to 5,000 shares. Honestly, Morgan Stanley should be sanctioned and punished by FINRA and the SEC for this, but they won't be.

Needless to say, once QE3 hits - under whatever form it materializes - with the help of CNBC and an extensive network of captive retail investment advisers - I'm sure the underwriting syndicate will be able to juice some performance out of this stock with the help from the fresh flood of the QE3 liquidity...

Speaking Fed liquidity, we will likely never see any sign of it other than a big move of gold and silver, but based on some extensive reading and conversations about the JP Morgan situation, I believe the "tempest in a teapot" bad hedge loss at JP Morgan is running into the $10's of billions on a true market to market and collateral call basis and that it extends to many areas of JPM's derivatives positions. Again, this is something that we will never know unless the Government forces JPM to open its books - something that will NEVER happen.

There are a lot of theories on how, what and why with regard to JPM's massive derivatives-related losses on a $100 billion portfolio of supposedly hedged positions. Since it is likely that taxpayer insured money has been employed, there is no reason for there to be any speculation on what is going on. JPM should be required to provide full disclosure and transparency in order to protect the interests of the taxpayers.

We do know that Facebook underwriter Morgan Stanley was out this weekend with an analysis that shows why JPM's losses extend to at least $5 billion: LINK. Of course, I wouldn't trust Morgan Stanley to do a thorough job analyzing anything to do with financials anymore than I would expect a drunk like Jamie Dimon to understand the complex nature of derivatives trading, market making and hedging.

Another interesting tidbit that has emerged is that the person in charge of assessing the overall risk for JPM's CIO department has a history of losing money on Wall Street AND of front-running his trading desk trades in his personal account: LINK Although he wasn't charged with front-running, that's what he was doing. Nice hire there, Jamie - why don't you throw back another cocktail and tell us about your firm's hedge book...

As I like to do, circling back to the opening quote, we can only surmise the extent of JPM's real losses given the little amount of information that the Government requires too big to fail banks to disclose. However, the fact that they formally suspended their stock buyback program tells me that there is likely some budding liquidity issues behind the scenes, that we can't see. Furthermore, we can expect that the Fed will make sure that JPM's solvency requirements stay funded. After all, if JPM were to blow up, it would likely take down the global financial system.

Here's a long term chart of gold. I am calling a bottom to this latest violent price correction. As you can see from the chart, there have been two previous big price corrections since 2001 and they all have very similar chart pattern. Each correction coincides with underlying problems embedded in the financial system that have deteriorated and are about to be monetized. This time will be no different:

Friday, May 18, 2012

There is a strong possibility that the Facebook IPO marks the beginning of the next big leg down in this secular bear market in stocks, which began in earnest in early 2000. While the business of model of Facebook has validity, the value placed on it by investors is entirely absurd. The only mechanism that will prevent a big flush in the stock market is the commencement of a massive QE3 initiative by the Fed. If this should occur, gold will do a moon shot and purchasing value of the dollar will futher deteriorate.

(Please note: technically this is not an IPO for Facebook. Facebook sold shares to the public via the OTC market about a year ago at $15. This was technically a secondary offering in order to enable the insiders at Facebook to unload appallingly overvalued shares on a wider public audience. This means anyone who has their money stupidly invested in a general stock mutual fund or pension 401k plan. This means most of you, as represented by your brain-dead financial advisors).

Re: About Facebook’s IPO (sourced from cyberspace, I did not write this)

Dear Potential Investor:

For years, you’ve wasted your time on Facebook. Now here’s your chance to waste your money on it, too. Tomorrow is Facebook’s IPO, and I know what some of you are thinking. How will Facebook be any different from the dot-com bubble of the early 2000’s?

For one thing, those bad dot-com stocks were all speculation and hype, and weren’t based on real businesses. Facebook, on the other hand, is based on a solid foundation of angry birds and imaginary sheep.

Second, Facebook is the most successful social network in the world, enabling millions to share information of no interest with people they barely know.

Third, every time someone clicks on a Facebook ad, Facebook makes money. And while no one has ever done this on purpose, millions have done it by mistake while drunk. We totally stole this idea from iTunes.

Finally, if you invest in Facebook, you’ll be far from alone. As a result of using Facebook for the past few years, over 900 million people in the world have suffered mild to moderate brain damage, impairing their ability to make reasoned judgments. These will be your fellow Facebook investors.

With your help, if all goes as planned tomorrow (i.e. this morning) , Facebook’s IPO will net $100 billion (actually $104 billion). To put that number in context, it would take JP Morgan four or five trades to lose that much money.

One last thing: what will, I, Mark Zuckerberg, do with the $18 billion I’m expected to earn from Facebook’s IPO? Well, I’m considering buying Greece, but that would still leave me with $18 billion. LOL.

Thursday, May 17, 2012

Now all Obama has to do is give them student loans and they can go study sanitation engineering at University of Phoeniz online and they'll disappear from the labor force! LINK Great way to once again lower the unemployment rate!

I consider gold outside my regular investments. I don't trade bullion. I hold it as a unit of wealth. I know that one hundred years from now, bullion will possess purchasing power. The dollar? I don't know. I do know that the history of every fiat currency is a descent into worthlessness. No fiat money has ever survived. - Richard Russell on King World News LINK

It's coming, people. Both a big debt ceiling increase and a lot more QE. Anyone who thinks the Fed is serious about not printing any more money is either cluelessly naive or hopelessly ignorant. The apathy and nonchalance about what is happening in this country is beyond appalling. And now Charles Schumer, a supposed Democrat, wants to prevent anyone giving up their U.S. citizenship from re-entering the U.S. ever again. Dare I remind Herr Schumer that is exactly the kind of law the Nazis imposed on Schumer's relatives (my relatives too) in the 1930's? Those who forget the past are condemned to repeat it (Santayana), Chuck.

Here's a list of Schumer's largest campaign contributors: LINK. A mix of wealthy, sophisticated Wall Street, law and accounting firms. I would like Schumer to come out and publicly investigate the partners and upper management of each one of those firms for offshore tax shelters and tax-evasion schemes. There's no way in hell that Schumer can say his biggest donors are not also big tax evaders. No f--cking way. F-ck you Schumer.

Aah but I digress. The Fed is already beginning to show its hand on QE. I don't know if it will be overt money printing/Treasury buying or if they'll use some other kind of veiled money printing scheme, like the massive dollar/euro swap facility that's in place and likely to go parabolic in size.

Circling back the Boehner's statement after his meeting on budget and fiscal issues with King Barack, I have to believe that the number Obama put in front of Boehner for a higher debt ceiling is somewhere in the $18 to $20 trillion range. And Obama wants this done without commensurate budget cuts. Here's the LINK

Make no mistake about it, if this country was forced to use a cash in-cash out spending procedure, there would not be any need for a debt ceiling increase. Until that happens the amount of Government debt issued and outstanding will continue to go parabolic, in bubble fashion:

THIS, my friends is what the chart of an asset class that is in a bubble looks like. The relative price of gold is probably right around 1985 on this chart. Gold and silver will never be in bubble-mode until their long term charts look like this.

This is why big institutions, domestically and abroad, are beginning to move their capital into gold. We haven't even begun to see the massive wave of institutional capital pile into the gold and silver asset class. We have seen this already in Treasuries, and it's coming to an end. Thus, the very crux of the reason why the Fed will soon be printing a lot more money and why gold and silver are getting ready to launch into their next cyclical phase higher.

I rarely like to stick my neck out and put a price/timeframe projection on the metals because the market is so highly manipulated. But I will say that I am betting a lot of my own money that gold will be over $2000 and silver will be over $50 before most people have put up their Christmas trees - that is, if they can still afford one...

Wednesday, May 16, 2012

From the Financial Times (Mark at Strategic Energy Research gave me the heads up):

Okayama Metal & Machinery has become the first Japanese pension fund to make public purchases of gold, in a sign of dwindling faith in paper currencies...With institutions warming to gold, too, demand could grow further.

Not much I can add to this article. Here's the LINK. You'll need to register for a free password. The FT is worth the effort.

What I will add to this is that we are seeing Central Banks, large institutions and wealthy global investors openly converting paper money into gold. Please contrast this with bubbleheads and financial idiots in this country (like CNBC, Bloomberg and Dennis Gartman) who continually pump and promote a fiat, paper currency system in collapse.

Tuesday, May 15, 2012

Everyone in the precious metals/mining stock sector is looking for anything to grab onto for optimism. Nothwithstanding that this type of sentiment always demarcates a bottom, and notwithstanding the fact that the basic fundamentals underpinning the precious metals - like catastrophic Government deficit spending and disastrous Central Bank negative interest rate policies - get stronger by the day, here's an excellent harbinger of a potential bottom/upturn in the metals/miners: Soros has quadrupled his exposure to gold via GLD: LINK.

This sell-off in the miners has become silly. One particular stock AUMN (which acquired ECU Silver) is now selling at a little over 20 cents per old ECU-equivalent share. At one time in 2007, ECU was over $3.30/share. This valuation implies that AUMN's silver in ground is valued at 30 cents/ounce. That is retarded. A couple years ago silver miners were selling for $1/oz in the ground. The price of silver is higher now and margins have exploded.

I don't know when this sell-off in the sector will end and the next move up will commence, but I just got off the phone with a longtime friend in NYC who told me that he just spoke to a very plugged-in "insider" (i.e. politically connected) type who told my friend that a massive QE in Europe and in the U.S. is coming and that this is the flush in precious metals that you want to use to back up the dump truck and buy because there might not be another opportunity like this going forward.

Back to Soros, I've noticed over the years that he has had good success as a market-timer in gold and mining stocks. As a matter of fact, he was the largest shareholder at one point in the predecessor company (Apex Silver) that became Golden Minerals that took over ECU. He sold Apex almost at its apex. At any rate, it is my strong belief that he uses GLD to index the price of gold for trading purposes. He's smarter than me and must know the potential Enron-type legal structure that belies the GLD trust structure. I would also bet a lot of money that Soros, given that he is a Holocaust survivor and Nazi occupation escapee, has accumulated a massive personal holding of physical gold.

When you see that money is flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed. Ayn Rand, "Atlas Shrugged" (Francisco D'Anconia money speech)

A good friend and colleague asked me my thoughts on the recent blogosphere posting over the weekend about the disclosure in JPM's 10-Q of pending litigation related to mortgage originations at JPM, Bear Stearn and Wash Mutual totalling $120 billion.

Let me be clear about one thing before I express my view on how this will turn out. I am 100% convinced that the housing bubble was precipitated and perpetrated by complete fraud, corruption, racketeering and felony activity. I think the people who were running the big banks involved like Countrywide, Washington Mutual, Bear Stearns, Merrill, Lehman, Bank of America, Wells Fargo and JP Morgan should be properly and rightfully investigated and prosecuted in criminal jurisdictional venues that are free from political influence and cronyism. Given that the Government, especially the Obama Justice Department, not only refuses to investigate and prosecute the big banks - thereby enabling the massive fraud and corruption to continue - we know this will never happen.

Many people over the past few years have asked me how I've been able to discern and predict the massive dislocations and events of collapse that have occurred and are unfolding. It's really quite simple. You just have to understand that our system has been taken over by, and is being run by, criminals. So you just have to think like a criminal. Once you free your thought process from any assumptions that people in power are "good" and our leaders are working for the people who voted them in office, then you can think objectively and thoughtfully about what is happening in the United States.

I read through the litigation disclosure in the footnotes to JPM's latest 10-Q. Here's the LINK

If you read carefully and between the lines in the sections preceding the part about the potential $120 billion face value liability, you'll see that much of JPM's recent mortgage-related litigation has ended in settlements or is being litigated with many plaintiff claims being denied or substantially reduced in scope. Part of the problem in litigating plaintiff claims of fraud is the law and legal precedence gives the courts a lot of leeway for interpretation in how legal theory and precedence is applied. For instance, if you read through the footnote that starts on pg 158 of the 10-Q, you'll see that plaintiffs named JP Morgan as a defendent on claims related to Bear Stearn and Wash Mutual on the theory that JPM was the successor to Wash Mutual. Claim denied.

Quite frankly knowing what I know about the legal process, especially at the District court level, plus hearing plenty of war stories from a good friend who is a trial attorney in Denver, most District court judges are the by-product of heavy political and economic influence. Why? Because in many States like Colorado, County court judges are appointed by the Mayor and District court judges are appointed by the Governor. In other words, the process of judicial appointment has been completely politicized. If you don't think that politicians' decisions about judicial appointments are influenced by economics, then you are miserably failing the requirement of thinking like a criminal in order to understand what is happening in this country. If you think like a criminal, you'll understand that in our current legal system judicial decisions at the District court level are heavily prejudiced in favor of the party with bigger economic influence.

Circling back to the $120 billion disclosure in JPM's 10-Q, understand that this is a number that JPM's auditor required JPM to disclose on the premise that there might be a 2% chance that JPM would ultimately be subjected to a claim this big. But also, per the previous comments, understand that the likelihood of ultimately seeing some kind of actual settlement of even 10% of this amount is quite low. Why? Again, think like a criminal. Does anyone really believe that a District court judge is going deny the many motions of objection or dismissal that JPM will inevitably file using tenuous legal arguments and barely relevant appellate court citations in order to object to most of the claims?

To be sure, ultimately there will likely be some kind of settlement. But it will be at a small fraction of the $120 billion total prima facie claim and it will ultimately be predicated on the ability of JPM's counsel, Sullivan and Cromwell and Greenberg Taurig, to beat down the plaintiffs with litigation chicanery. Greenberg Taurig specializes in buying politicians and influencing the Government. I'll take Greenberg's ability to maneuver the courts and defend JP Morgan over any plaintiff attorney in the country.

Friday, May 11, 2012

"We're getting to the heart of why you own gold" - long time friend and colleague,
Wistar Holt (Holt & Shapard Capital Mgmt)

I think every useful blog under the sun has re-hashed the JP Morgan/Jamie Dimon bombshell dropped on the market last night, so I'm going to try to be brief, to the point and hopefully add some "color" and information that is new.

First, Jamie Dimon did a superb job of throwing very expensive, opaque lipstick on the world's ugliest pig and catering the to the Wall Street analysts and media who take what he says and spin it to the public in the best possible light. In fact, I just saw one headline on Marketwatch that said "JPM stock is lower due to a a bad trade." A "bad trade?"

What we just saw last night was the result of Wall Street's equivalent of unsupervised special ed. children playing with financial nuclear triggers. How do I know this? I used to be one of those unsupervised kids back in the 1990's, when the magnitude of the capital being played with was a small fraction of what it is now.

This is not a "bad trade." This is a massive proprietary (i.e. bank trading/speculation portfolio) position that has blown up. Dimon fraudulently refers to it as "an economic hedge" that didn't work as well as they expected.

Jamie Dimon is either completely ignorant of what is going on in JPM's speculation-ridden proprietary trading operation or he's lying. Or a lot of both. If he's clueless, then he should be terminated by the board immediately. If he's lying, he should be investigated by the Obama Justice Department. But we know the latter has no chance of happening, as Eric Holder's Justice Dept has taken financial fraud prosecutions to a 20 year low. Not surprising since JP Morgan and other Wall Street banks are the heart of the client list of Eric Holder's pre-Justice Dept law firm.

With regard to the idea that - as Jamie Dimon put it - this is a $2 billion dollar economic hedge that didn't work. Make no mistake about about it, the true size of this horror is easily several multiples of that reluctantly disclosed "error." This quote is from a good friend who has spent his career at four different Wall Street firms, including the pre-collapse Lehman - in other words, he knows quite a bit about what goes on behind the scenes in bank risk portfolios: "Saying this is less than ten times the disclosed amount is being generous."

What we know for sure is that there is a derivatives trader in London working for JPM who was running a trading/capital position that is thought to be as large as $200 billion. For JPM/Dimon to publicly claim that the embedded loss in this position is only 1% is complete fraud. To begin with, JPM's stated book value as of 12/31/11 is $183 billion. There is no way in hell that JPM would call a surprise conference call to disclose a loss from a bad hedge that amounts to less than 1% of shareholder equity. Even by today's absurdly loose accounting standards, anything less than a 5% event is not considered to be meaningful.

What this tells us is that JP Morgan's liquidity is potentially threatened by what is unfolding in its $78 trillion derivatives book (per recent OCC filings). Even worse, despite all the claims to the contrary, and Dimon's insistence of JPM's "fortress" balance sheet, the risk managers at JPM have no idea how to hedge $78 trillion in exposure and this myth about "net" vs. "notional" derivatives exposure is complete fraud.

The other disclosure by Dimon last night that really irritates - and one that is part of the expensive lipstick he liberally applied - is the remark that JPM has $8 billion in "unrealized" gains in its "available for sale" portfolio. Give me a break. I would challenge Dimon to go ahead and sell those holdings at market and let's see what the real number is. I would not be surprised if what is realizable is a small fraction of that. While we won't know what the true mark to market status of JPM's book value is, I would bet meaningful money that it is less than half of what is being stated in its 10k/10q filings.

Beyond all of this, we really don't know much. JP Morgan did a masterful public relations job at obscuring the facts and minimizing the data and details that would be meaningful to any analyst who is looking for the truth. But we should expect nothing but this kind of useless bullshit given that the Obama Government has made it clear that they are not going to do anything to implement supervision and law enforcement on the group of banks and individuals who have contributed and raised the most amount of money for Obama's 2008 and current election campaigns.

Thursday, May 10, 2012

I wondered why the SPX futures crapped out right after the market closed. JP Morgan disclosed that it has lost $2 billion on synthetic credit derivative bets in its Chief Investment Office division. Not sure why JPM had to wait until the market closed. Surely they knew about this before the market closed. LINK

Rest assured that the true magnitude of losses is several multiples of this "mark to fantasy" disclosure. Also note that the Chief Investment Office is the division in which JPM conducts its precious metals trading/manipulation activities.

I have to believe, given that Wall Street is monkey see, monkey do, that several other Too Big To Fails have similar problems with their credit derivative portfolios. But don't lose sleep over this because the SEC, CFTC, FINRA, FASB and the Justice Department will see to it that Wall Street will never have to honestly disclose its true financial condition. The big collapse that eventually ensues will be used to cover the mess and they'll blame everything on Europe or Iran.

This is what I envision: Jamie Dimon gets on tv and says "we didn't see this coming, but some rogue dressed in white Islamic rags wearing a Star of David around his neck, gold coins falling out of his pockets and speaking Italian came rushing onto our trading floor and detonated a bomb stuffed in his underwear. Our systems blew up and Wall Street collapsed - sorry dudes."

We are in the last innings of a very bad ball game. We are coping with the crash of a 30-year–long debt super-cycle and the aftermath of an unsustainable bubble - David Stockman, interview linked below

This interview by The Gold Report (http://www.theaureport.com/) is an excellent follow-up to my blog post from yesterday. In this, Stockman does a superb job explaining how the Fed manipulates the cost of money and the cost of debt and how Wall Street takes advantage of this through the use of insiders, like former Goldman Sachs partner Bill Dudley, who runs the NY Fed:

The Fed is destroying the capital market by pegging and manipulating the price of money and debt capital. Interest rates signal nothing anymore because they are zero. The yield curve signals nothing anymore because it is totally manipulated by the Fed...there is also just plain crony capitalism that is not that different in character and it's what Wall Street does every day. Bill Dudley, who runs the New York Fed, was formerly chief economist for Goldman Sachs and he pretends to solicit an opinion about financial conditions from the current Goldman economist, who then pretends to opine as to what the economy and Fed might do next for the benefit of Goldman's traders, and possibly its clients.

This is a must-read interview - every word. Stockman succinctly and clearly lays out what happened and why in 2008 and explains why the next wave that will hit our capital markets will be the final blow: LINK

The only conclusion that anyone can draw from this - at least anyone willing to open their eyes to the truth and accept reality for what it is - is that the financial, fiat-currency driven disaster that is going to hit this country necessitates the conversion of as much of your paper wealth into gold as possible.

Wednesday, May 9, 2012

We have reached a profound point in economic history where the truth is unpalatable to the political class - and that truth is that the scale and magnitude of the problem is larger than their ability to respond - and it terrifies them. - Hugh Hendry, Milken Institute Global Conference 2012

From yesterday's Huffington Post: Oops! Air Force Drones Can Now (Accidentally) Spy On You
"As long as the Air Force pinky-swears it didn’t mean to, its drone fleet can keep tabs on the movements of Americans, far from the battlefields of Afghanistan, Pakistan or Yemen. And it can hold data on them for 90 days — studying it to see if the people it accidentally spied upon are actually legitimate targets of domestic surveillance." Here's the LINK

If you think that air force drone spying is "accidental," I'd like to interest you in buying a bridge that connects NYC's upper east side with Queens. I doubt you read about that in your local newspaper or heard about it on CNBC, Fox News, etc.

I guess Obama conveniently forgot that he promised to reverse and eliminate the executive orders signed by Bush that authorized un-Constitutional invasion of our privacy. It's amazing how many dogmatic, blind Obama supporters also seem to forget all of Obama's "hope and change" promises...

Here's another one, from today's HuffPo: Support For War In Afghanistan Falls To New Low, Poll Shows: "In results released Wednesday, 66 percent opposed the war, with 40 percent saying they were "strongly" opposed." Here's the LINK

Once upon a time back in the summer/fall of 2008, I recall Obama spreading the message that he was going to get us completely out of Iraq with in his first 90 days, close Guantanamo within his first year, and work to reduce our involvement in Afghanistan. I heard those words first-hand at his campaign rally in Denver in October that year. Bin Laden is gone now. Why are we still in Afghanistan spending money we have to borrow because our economy can not come close to supporting the Dept of Defense, let alone the massive and growing welfare system?

And now the Government wants us to believe that a rag tag band of Arab terrorists are going to stuff undetectable bombs in their underwear and get on board our airlines and blow them up. Give me a break. It's getting to the point where you are going to have to take a tube of KY Jelly to the airport with you in case you get randomly singled out by the idiots running TSA security so they can give you a proctology exam to make sure you haven't stuffed plastic explosives up your ass.

Why is all of this happening? See the above quote. Before I finish up my rant today, please watch this scene from the movie "Goodwill Hunting." This movie was scripted roughly 15 years ago. Keep in mind that movies and literature usually reflect things that are occurring in society, often below the surface. Much of what we're aware of today has been going on for a long time:

Now the NSA is building a massive taxpayer funded facility in Utah that is going to be capable of monitoring just about every aspect of your communicative life, including all emails, phone calls and probably what you watch on tv every night. The former NSA employee who exposed the intent and abilities of this facility, who helped in its original development, was in the media recently saying that this country is within a inch of totalitarianism. Why? See the quote above.

Finally, for all Obama apologists, here's a list of some of Obama's campaign promises that have yet to be fulfilled:

- put all bills on the White House web site for five days before signing them
- have the congressional health care negotiations broadcast live on C-SPAN
- end earmarks
- keep unemployment from rising above 8%
- close the detention center a Guantanamo in the first year
- make peace with direct, no precondition talks with America 's most hate-filled enemies during his first
year in office, ushering in a new era of global cooperation
- a new era of bipartisan cooperation in all areas

Remember these? I remember them like it was yesterday. I'm not sure any of his promises have been fulfilled, unless you want to count that massive disaster called the Health Care Legislation. In few years, we'll all forget what it was like living in a country that was protected by the Constitution, Rule of Law and habeus corpas...

Monday, May 7, 2012

"These paper money addicts, who remain trapped in the fallacies of Keynesianism, are revealed as a vast intellectual Sahara. Won’t somebody inform them that overprinting caused this mess. More overprinting is obviously the wrong remedy. If a little arsenic is bad for you, then maybe a lot more is not good either.

Meanwhile, gold and silver are in long-term ‘Super Major Uptrends.’ That’s one way to protect yourself, and that’s for survival purposes, not for capital gains. Whatever happens next, sooner or later the world must return to wealth in the ground. So, I think that mining stocks deserve a place in all farsighted portfolios.”

That's a quote from James Dines in his latest interview at King World News: LINK

So I guess myself and the other countless bloggers who shredded Charlie Munger over the weekend, and have previously disemboweled Warren Buffet's and Bernanke's comments about gold, are not the only ones understand the fundamental flaw in looking at gold as strictly an "investment."

And one has to wonder why the Becky Quicks of the bubblevision media world do not ask Munger or Buffet why China, India, Russia et al - plus many Central Banks - feel compelled to load up on physical gold and silver. How do these investment gurus explain that? Here's a good article not published by mainstream media that reviews the latest move by China to commence silver futures trading on the Shanghai Futures exchange: LINK

Perhaps the Truth about Buffet's hatred of gold is best expressed in graph which shows the long term performance of Berkshire Hathaway stock priced in terms of gold - this is the market expressing it's view:

Priced in terms of gold, Buffet's wealth as represented by the price of his Berkshire Hathaway stock has declined 30.5% in the last three years and a staggering 77% since late 1999. Did Warren or Charlie happen to bring up this little factoid at their annual shareholder soiree this past weekend? Buffet's cult-like mush-brained followers slavishly follow him around lapping up any crumbs he might drop for them like the pied-piper, thus it wouldn't have mattered anyway...

On to the economy. As a follow-up to Friday's employment report and it's immediate evisceration by the blog world, a lot of people are left wondering how all of the for-real unemployed people not counted as part of the labor force are feeding their families. The answer lies in the welfare statistics.

As it turns out so far this year, nearly 1 million workers have applied to get on the Government's disability program. More than 1/3 will eventually be enrolled, including 90,000 in April alone. If you include spouses and children, the number of new people on welfare "disability" for 2012 is 539,000. If you net that amount against the number of people dropped from the labor force so far this year, it represents a substantial portion of that manipulation metric. All of a sudden the 1 million people who have applied for disability decided they were too "injured" to work?

In fact, since Obama took office over 5 million workers and their families have been enrolled in the disability program since Obama took office. Here's the source for these numbers: LINK That's a lot of votes Obama has bought and paid for with Taxpayer money that Romney won't have a shot at unless he gets elected and opens the disability floodgates even more...

Who said there's no such thing as a free lunch? Obama has been handing them out by the millions. It's too bad most of the remaining taxpayers - those still healthy enough to hold down a job - are not aware of this fact...

Saturday, May 5, 2012

"gold is a great thing to sew onto your garments if you're a Jewish family in Vienna in 1939 but civilized people don't buy gold" - Charlie Munger on CNBC LINK

Is that the first salvo by the elitists to start pointing the finger at the Jews and placing blame for the economic apocalypse brewing on anyone beside themselves? This hauntingly reverberates of Germany circa 1934.

He made that remark in response to comments that hedge fund manager David Einhorn - who is obviously Jewish - made with regard to why he keeps a high percentage of gold in his fund

If we didn’t have a Jelly Donut monetary policy, I would sell gold, sell bonds and buy stocks. But, the Fed is filled with academics who thoughtlessly rely on econometric models that reflexively indicate that repeated Jelly Donut orgies are the best way to get a sugar rush into the economy. And, the Fed Chairman seems to have no trouble rationalizing any policy failure on the basis that ‘monetary policy cannot be a panacea,’ or ‘it’s bad luck,’ or as proof that he just hasn’t force fed us enough Jelly Donuts, yet. As long as this is the case, it seems unlikely the Fed will change course.”

“As a result, I will keep a substantial long exposure to gold — which serves as a Jelly Donut antidote for my portfolio. While I’d love for our leaders to adopt sensible policies that would reduce the tail risks so that I could sell our gold, one nice thing about gold is that it doesn’t even have quarterly conference calls.”

1) Gold is NOT an investment, per se. Gold is the world's oldest currency and you exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy. Gold can ONLY be considered aninvestment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured.

2) I seriously can't believe that Charlie Munger made that comment for public consumption. The Buffet Klan is slowly throwing gasoline on themselves and lighting themselves on fire in the eye of the public. Anyone has the right to be a racist or harbor hate. But for a highly public official or corporate officer - someone considered a business or political leader - to make those remarks on t.v. for public consumption, reveals just how infected our entire system has become with corruption, defamation, deception and overall societal decay. It shows the extent to which our system is sliding in fascism and totalitarianism....

Friday, May 4, 2012

As a self-proclaimed Talmudic scholar and student of history, there is no question that Ben Shalom Bernanke is eminently aware of this famous quote from Mayer Rothschild. He is even more aware of the significance of it, as Chairman of the Federal Reserve.

For those who don't know, please understand that the Fed is NOT part of the Government, none of the officials are elected and it does NOT represent the interests of the citizens of the United States. The Federal Reserve is a private entity that is owned by several banks, the true identity of which has never been publicly disclosed:

Some people think that the Federal Reserve Banks are United States Government institutions. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders. – The Honorable Louis McFadden, Chairman of the House Banking and Currency Committee in the 1930s

Although there are plenty lists available on the internet that outline what is likely a fairly accurate presumption of the controlling banks. I leave it to you to find the list that you think is accurate, but there is not doubt in anyone's mind that the successor banks to the bankers who attended the famous meeting on Jekyl Island in 1910 - arranged by J.P. Morgan (the man) as a precursor to founding and establishing the Federal Reserve as the Central Bank for the United States - are most of thebanks that own the Fed (also there: representatives from the Rothschild and Warburg banking dynasties). It is likely that JP Morgan Chase is the controlling shareholder, as JP Morgan has acquired several of the predecessor entities which were original Fed shareholders, including Chase, which was owned by the Rockefeller family. Other influential shareholders would include Goldman Sachs, Bank of New York (which owns Mellon bank now), Lazard Inc (Lazard Freres/Lazard Brothers) and Rothschild & Compagnie.

At any rate, I bring all of this up because I was having a discussion with a long-time friend who opined that Romney had a shot to beat Obama in November (he's either not voting or writing in Ron Paul). I replied by saying "not a chance." Why? Because Bernanke will lose his job as the most powerful front-man in the United States (see the quote above) and he isn't going to relinquish that. Romney already said that Bernanke is gone if he's elected. All Bernanke has to do is shift his money printing and helicopter dropping into high-gear in June and we'll experience a big move higher in all the markets (especially the metals and miners) and a superficial, Government-hiring/stimulated (more road work) economic bounce by October. Election done - in June.

I bring all of this up because, not only was the headline employment report today a disaster, the details behind the headlines and in the footnotes were an unmitigated catastrophe. The headline number reported an increase of 115,000 supposed jobs in April, well below the 165,000 consensus expectation and even below the lowest big bank forecast (125k by Goldman, revised lower a couple days ago). The headline unemployment rate was 8.1%, a slight decline from the March print. What was not in the headline was the fact that 522,000 people were erased from the labor force by Government statisticians, which was the source of the decline in the unemployment rate. The labor force participation rate of 64.3%, a 30-year low. Think about that statistic for a moment: the Government capriciously decided that 522,000 thousand people had stopped looking for work, and no longer wanted work, in April. Someone in the Federal Government is hallucinating.

Furthermore, of the 115,000 alleged jobs added, 22,000 were from "seasonal" add-backs and 206,000 were imputed from the birth-death model, the nefarious "plug" number calculated by the Government pin-heads who take a wild "guesstimate" at the number of jobs created and lost by new business creation and closure. Anyone want to place any faith in that absurd estimate?

There's plenty of other statistical manipulations and Government misrepresentations in the April employment report. I'm sure several other blogs will pull the report apart and lay out the analysis. The way I look at it is if you add back the number of people dropped into jobless hell - the 522,000 worker dropouts - and assume the birth/death/seasonal manipulations created another 200,000 fantasy jobs, then April likely saw close to 600,000 jobs lost (115,000 - 522,000 - 200,000). To try and fine-tune or debate the actual change in employment beyond that is absurd because the real unemployment rate is so far removed from what is reported that to split-hairs over the monthly tally produced by the Government is impossible.

At some point we are going to see a massive QE/money printing/helicopter drop of paper/electronic fiat currency program from the Fed, as Bernanke will heed Mayer Rothschild's wisdom and exercise his control over the U.S. money supply...got gold?

Thursday, May 3, 2012

Russia has become the first major country to call for a partial restoration of the Gold Standard to uphold discipline in the world financial system....

Chinese and Russian leaders both plan to open debate on an SDR-based reserve currency as an alternative to the US dollar at the G20 summit in London this week...

A long-time friend and colleague had told me early last week that someone he knows who lives in Switzerland said that the financial circles had been buzzing with a rumor that the BRICs were going to unveil a new currency trading/clearing system that would enable the world to conduct commercial trade without using the dollar or the nefarious SWIFT system.

Looks like there may be some truth to that rumor - here's the article: LINK
I want to point out and correct one egregiously incorrect statement in the article. The author avers that the dollar inflation caused by the Viet Nam War and the Great Society social welfare programs forced Nixon to "close" the gold window.

Actually what happened was that the Bretton Woods Agreement created a gold-backed system in which the United States could only issue debt to the extent that it had gold to back the amount of debt outstanding. Foreign sovereign creditors had the option of redeeming their debt claims for gold at the Fed "window." Eventually it became obvious to those paying attention - i.e. Charles De Gaullle - that the U.S. had issued debt well in excess of its gold holdings. The French began to redeem their Treasury notes for gold. When it was rumored that the Swiss were going to start doing the same, it became necessary for Nixon to close the gold window or risk a run on the U.S. gold "bank" and being exposed for violating Bretton Woods by issuing more debt there was gold in Ft. Knox to back it.

The rest, as they say, is history. Many of us have been arguing that eventually the Chinese/Russians/etc would eventually reassert a gold standard. When this happens the dollar price of gold will do a space launch and the standard of living in this country - for those who don't have any gold and silver - will decline to 3rd World standards...

I guess all you can do is let Greenspan's remarks put a grin on your face. The source of the grin being the knowledge that Greenspan is now nothing more than a senile old man who will go down in history as the one who started the fiat monetary inflation (printing) of our system that will ultimately be its demise.

Let's consider for a moment what exactly it would mean if "equity," meaning the stock market, were truly the "collateral" of the financial system. "Collateral" is something of perceived value that a borrower puts up to secure a loan. Gold is now being used as the collateral of necessity for interbank lending purposes in Europe. Why? Because lenders do not trust anything else that's allowed to be used for that purpose. In an opaque, tenuous form the U.S. Government's "full faith and credit" is being used as "collateral" to back its catastrophically enormous debt issuance and the money being printed up to fund that debt. "Home equity" was the collateral source of the housing market bubble and collapse.

GAAP Accrual Accounting Methodology Is At The Root Of Financial Fraud

Let's think about this in terms of using an individual stock as "collateral" by taking a quick peak at Amazon.com (AMZN). I have maintained for over a decade that AMZN takes fraudulent advantage of GAAP accounting gray areas - i.e. stretches them beyond the "grey" area of legality - in order to generate GAAP income. As we know ad nauseum, this wouldn't be the first case in which the SEC and FINRA look the other way. Without going into technical details that would put you to sleep unless you love hard core accounting, in effect AMZN is a giant ponzi scheme which relies on the ability to grow sales every quarter in order to generate enough cash to cover last quarter's expenses.

The perfect example of this process starting to sputter and fail is AMZN's latest quarterly report. In that, AMZN used non-cash gimmicks to generate almost 70% of its reported net income (equity method of income from investments). It also sustained a $3 billion drawdown in its cash balances in order to pay off its bulging accounts payable account. It's sales margins were almost negligible because AMZN subsidized the cost of everthing it ships (fulfillment) in order to generate sales.

At any rate, here's a look at AMZN's value as equity "collateral:" It has a market cap of $104 billion; a p/e ratio of 191 - note: the true p/e ratio calculated by stripping away accounting games is likely at 4-5 times higher; book value is $7.2 billion BUT nearly 50% of this is comprised of the intangibles of deferred tax assets and goodwill; strip away intangibles and tangible book value is $3.8 billion, leaving a market cap to book value ratio of 27x. One note of caveat, the tangible book value assumes a prima facie acceptance of AMZN's fixed assets, listed at $4.6 billion. No doubt the market value of AMZN's fixed assets is likely lower.

So there you have it. A good example of equity "collateral" according to Greenspan is a stock that trades at a near infinite multiple of true earnings and an absurd multiple of book value (most banks trade at a book value multiple of 1 or less). Please indicate to me if you would lend your money against AMZN (if so, I may want to borrow some money from you lol).

Don't get me wrong, I love AMZN's service. If I don't need something immediately, I can shop on AMZN and get a better price on almost anything than at any competing store in Denver. Not only that, the price includes shipping in most cases. It's great for the consumer. But AMZN is one of the "poster child" stocks that represents the extreme liquidity and fraud bubble that now permeates every aspect of Wall Street and DC. Eventually AMZN will collapse.

So looking behind the words that came out of Greenspan's mouth on CNBC - aka Bubblevision - we can see the true absurdity of the [Money Printing] Maestro's comments. It's actually quite poignant to see the incredible intellectual decay of the author of "Gold and Economic Freedom" (1966) LINK into a senile old babbling apologist for the monetary policies destroying this country. In a way, the path of degeneration from the 1966 Greenspan to the 2012 Greenspan is emblematic of the path of decline of the United States...

Eric Arthur Blair aka George Orwell

"Hope" is not a valid investment strategy

Full Time Jobs Over Last 5 Years

Is Your Gold Missing?

Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

Epic Quote - "Jesse" Sent This To Me

"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title." - Anonymous

The Basic Fundamental Problem

What's the solution?

“THERE IS NO MEANS OF AVOIDING THE FINAL COLLAPSE OF A BOOM BROUGHT ABOUT BY CREDIT EXPANSION. THE ALTERNATIVE IS ONLY WHETHER THE CRISIS SHOULD COME SOONER AS THE RESULT OF A VOLUNTARY ABANDONMENT OF FURTHER CREDIT EXPANSION OR LATER AS A FINAL AND TOTAL CATASTROPHE OF THE CURRENCY SYSTEM INVOLVED.”

Ludwig von Mises – Austrian Economist (1881- 1973)

Quote Of The Month Courtesy of "Jesse"

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie? JR: In my opinion, yes, of course it is. Have you looked at it? They’ve changed their accounting several times in the past few decades. When housing was 20% to 25% of the CPI and housing was going up, they didn’t count it, saying rents weren’t going up, and then when home prices started going down, they counted it. It’s the same with many things. It’s staggering some of the tortuous reasoning that the BLS has used over the past 25 or 30 years. When the price of gasoline goes up, they say it’s not really going up because it’s better gasoline, better quality, therefore you’re getting more for your money. I mean, it’s endless, the stuff that they say and for some reason people sit there, although more and more people are catching on, and accept what the government says.

Priceless Quote From Richard Russell

On Larry Summers: This doofus practically ruined Harvard when he headed it. I can't think of a worse choice to be chief economic advisor. I wouldn't trust Summers to manage a Starbucks franchise.

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.

Quote of the Month

And very relevant in the context of yesterday's post about gold moving higher against all fiat currencies:

Just imagine what would happen if a mere ten percent of the money currently going into bonds were instead to go into gold. As in 1972, the real move has yet to begin.

- Murray Pollit, Pollit & Co.

A Picture Says It All...

www.moneyandmarkets.com

Golden ore samples produced by Eurasian Minerals

Undisclosed exploration site

The Next Reserve Currency?

1 oz. Chinese Panda

Guess who said this?

Rising prices of precious metals and other commodities are an indication of a very early stage of an endeavor to move away from paper currencies...What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment.

-Alan Greenspan, 9 Sep 2009

THIS is what REAL money looks like

1 oz. Gold Eagles

Alan Greenspan said what?

“Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”

From "Gold and Economic Freedom" a 1966 Essay by Alan Greenspan

About Me

I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for a large bank. I have an MBA from the University of Chicago, with a concentration in accounting and finance.
Currently I co-manage a precious metals and mining stock investment fund in Denver.
My goal is to help people understand and analyze what is really going on in our financial system and economy.